Orion Energy Systems, Inc. (OESX) Earnings Call Transcript & Summary

Good morning, and welcome to the Orion Energy Systems Fiscal 2023 Second Quarter Conference Call. [Operator Instructions] Today's conference is being recorded. I would now like to turn the call over to Bill Jones of Investor Relations.

Thank you, and good morning. Mike Altschaefl, Orion CEO, will open today's call followed by the [indiscernible] CFO will then review the Company's Q2 and year-to-date results, financial position and financial outlook, and then we will open the call to investor questions. An archived replay of this call will be posted to the Investor Relations section of Orion's web page at www.orionlighting.com. Remarks that follow and answers to questions may include statements that may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include words such as anticipate, believe, expect or similar words. Additionally, any statements that describe future plans, objectives, goals, and the business outlook are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include, among others, matters that the company has described in its press release issued this morning and in its filings with the Securities and Exchange Commission. Except as described therein, the company disclaims any obligation to update forward-looking statements that are made as of today's date. Reconciliations of certain non-GAAP financial metrics to their corresponding GAAP measures are also provided in today's press release available in the Investor Relations section of Orion's website. Now I will turn the call over to Mike Altschaefl.

Thanks, Bill. Good morning and thank you for joining today's call. This morning, we reported our second quarter results and reiterated our full year revenue outlook. Our second quarter results reflect the impact of some continued customer delays in the initiation of several large LED lighting projects, which has pushed these opportunities into future periods. Almost all of our larger project opportunities remain in place. We did see one customer halt their new projects in response to changes in their near-term facility needs. The good news is that we expect most of these projects we have been talking about for a few quarters to commence in our third or fourth fiscal quarters, providing momentum as we head into our next fiscal year. Among these opportunities are significant projects with logistics, industrial, automotive and public sector customers. Additionally, our pipeline of project opportunities is expanding, driven by a steady increase in new project quoting activity with existing customers and some significant new prospects. While the timing and pace of business activity remains hard to predict, stepping back, we do see strengthening interest in Orion's mission of delivering high-quality, innovative, industry-leading products and our growing range of services to meet customer goals for energy efficiency, workplace safety, cost reductions, environmental and other business goals. Further, our unique and proven ability to provide turnkey solutions to design, produce, install and maintain increasingly complex LED lighting and control systems and now EV charging solutions addresses a growing need for organizations with large national or regional footprints with hundreds and sometimes thousands of locations. Last month, we entered the electric vehicle charging market through the acquisition of Voltrek, a top-tier commercial EV charging solutions provider. We are very excited about this expansion of our portfolio of solutions for our existing and future customers, and believe this business has the potential to become a significant revenue opportunity for us over the next 3 to 5 years. Let me now turn the call over to Mike Jenkins for some additional commentary and insights on our business. Mike?

Thank you, Mike. To start off, like a lot of people right now, I am fighting a cold, so please forgive any coughing or if I pause to take a drink. Fundamentally, Orion is built around a core focus on high-quality products and industry-leading customer service for all of the markets we serve, along with proven capability of turnkey solutions for large national accounts with multiple locations. We believe our model of manufacturing turnkey capabilities and strong ESCO distribution partners are unique in the industry and gives us access to an increasing amount of the market. While our history has been in lighting, we have been expanding our reach and capabilities into complementary areas, including lighting and electrical maintenance services and recently in the commercial electric vehicle charging solutions. Recognizing the opportunity to broaden our product and service offering to our current and future customer base, we have centered ourselves on a customer-for-life philosophy in which we focus on providing technical solutions delivered through several models that help customers achieve their goals. Orion has 3 primary go-to-market models: ESCO partners, distribution partners and our own turnkey model. Our turnkey services leverage our ability to help large national customers assess their site requirements and then design solutions, produce custom products, integrate controls, and manage the installation and commissioning of these systems to meet each customer's specific requirements. Our ESCO business is built with a strong network of partners who are typically providing turnkey solutions where Orion provides product and potentially other services as support. Orion's distribution business is primarily focused on newbuild and agricultural markets in local geographic areas. Finally, we are building the capability to provide ongoing maintenance services, not just for lighting, but also for our new EV charging business. We are also working to educate customers on the total cost of ownership of lighting and other systems so that they can see the long-term advantage of using highly energy-efficient products that are built to last under demanding applications. What is clear is that investing a bit more on the front end in the higher-quality energy-efficient solutions that Orion provides will deliver a substantially higher long-term return on investment while also providing substantial reductions in CO2 emissions. Our model is resonating with a growing customer base. We are working to build on our success to both expand our customer -- our base of customers as well as our breadth of products and services. Ongoing customer dialogues demonstrate that there is a growing appreciation of the value Orion can provide directly or through partners and that the value only increases in proportion with the size of the customer, the number of locations and the complexity of their needs. Unfortunately, these larger engagements take longer to develop. And as we have seen, the project timing can be impacted by factors outside our control. But as we build the business, we expect the impact of such factors will diminish by our growing scale. Recapping what I said on our last call, working from our core focus on energy-efficient LED lighting solutions with turnkey capabilities, we have also been building our sales into the energy service company or ESCO market and through our electrical contractor relationships. The ESCO market, in particular, is a perfect match for our focus on high quality and energy efficiency as the ESCO model is built around delivering energy savings to their customers. While this market experienced a negative comparable to prior year in Q2, we expect year-end growth to be positive by adding to the number of partners we work with and several major end customer projects delivered through our ESCO partners starting in Q4. From our success serving large national accounts, we saw the opportunity to expand our value into the lighting and light electrical maintenance areas. We formed the Orion Maintenance Services division to provide lighting and electrical maintenance services to meet the needs of customers. Electrical maintenance services are a perfect complement to our lighting solutions and extend our ability to deliver on our customer for life mission. The acquisition of Stay-Lite in January greatly accelerated our capabilities to support customer and partner needs. We plan to leverage this platform to support our direct lighting end customers to support our ESCO partners in our recently acquired EV charging business, Voltrek. Speaking of Stay-Lite, integration continues, and we are investing in the areas of systems and training processes as well as adding additional personnel and other resources required to scale this business while maintaining the service quality and reliability that is essential to our success. We have purposely kept our focus on serving our existing maintenance customers to ensure a solid transition to Orion. We are focused on growing this business by expanding current maintenance relationships and through cross-selling with current end customers and ESCO partners. We believe that there is substantial long-term growth potential for this business, which is an ideal complement to other businesses, both because it provides a growing base of recurring revenue for Orion and because of the cross-selling synergies it provides between our LED lighting and controls and our new EV charging solutions. We recently established a dialogue with a major new customer prospect for the maintenance service business. This is one of several opportunities which we're working on today. The opportunity which was sourced through our ESCO partner is with a retail organization of approximately 1,400 locations, primarily in the west and southeast, and we expect progress on this opportunity to be announced in Q4. Continuing to build on our customers for life strategy, we recently expanded our business into the commercial electric vehicle charging station market through the acquisition of Voltrek. This strategic acquisition was the result of several quarters of research and due diligence on the EV charging market and potential partners. Importantly, this move was in response to growing customer requests for assistance with their EV charging needs across our retail, industrial, commercial and public sector clients. After our comprehensive process, we were fortunate to find Voltrek and its prior owner Kathleen Connors, who shares very similar cultures, business strategy and ethics, a strong long-term customer commitment, and we both seek to differentiate ourselves through comprehensive solutions. Kathleen is an EV industry pioneer with over 13 years' experience in installing charging systems with a vast and diversified portfolio of commercial, industrial and municipal customers. Kathleen will continue with Orion as the head of our EV charging/Voltrek business. EV sales are expected to triple from 2021 through 2025, becoming nearly 1/4 of new vehicle sales, and the market is expected to continue to expand at a similar rate through this decade. To address this growing base of vehicles, stores, businesses, schools, offices, housing complex, tourists and entertainment destinations, manufacturing facilities, hospitals, health care, et cetera, a charging infrastructure will need to be put in place to sufficiently support this dramatic shift towards EVs. EV charging will be an increasingly important component of a high-quality customer experience as well as an important amenity to attract and retain employees and visitors at various facilities. California is already mandating the inclusion of charging stations for new construction products and $5 billion in federal and state funding has been authorized to support EV adoption in the building of charging infrastructure over the next 5 years nationwide. Voltrek's team is well versed in advising customers on how to qualify for and utilize these incentives. Voltrek's focus has been primarily in New England, and we see the opportunity to significantly expand their footprint and growth potential through our national customer base and electrical maintenance services network as well as through our ESCO and distribution partners. We have already begun a range of efforts to introduce Voltrek solutions and capabilities to the Orion sales and service team. It will take time to get everyone up to speed, but the Orion and Voltrek teams are excited by the new opportunities, expanded value proposition and extended customer reach. Turning to sales and marketing briefly. We have been ramping up our outreach efforts via industry conferences, participating in 2 major events during the second quarter. Both events generated meaningful new conversations with customers and channel partners, which we will work to convert into future business. We are also far along in the website overhaul project to enhance the value and ease of use for customers and partners. We believe the updated site is on the cutting edge of what is being done in our industry, and we're targeting its launch by the end of calendar 2022. As far as the overall industry environment, as Mike mentioned, we are seeing positive signs of customers refocusing on LED lighting projects that have been delayed. Several reengaged us in the past several weeks to discuss moving forward. Similarly, some of the supply chain and other challenges that have been slowing customer decision-making are gradually receding, which we also view as a positive sign. As for our own supply chain position, the environment seems on a gradual trend of improvement, and we remain in a strong position. Proactive management has allowed us to meet almost all of our demands within our normal delivery time line of approximately 2 weeks or less. Again, our U.S.-based LED lighting manufacturing capabilities continue to support our industry-leading delivery time lines. As for inflation, we've worked hard to offset these impacts through proactive sourcing efforts and offsetting price adjustments, efforts that help benefit our Q2 gross profit percentage performance. A few call-outs on our Q2 performance before I turn it over to Per. As we have discussed before, the major retrofit project at our #1 account has largely been completed, and we see the impact in our revenue decline in Q2 year-over-year. The decline of this customer in Q2 was $18.7 million out of our total decline of $18.9 million. The global online retailer that we also discussed in prior calls declined $900,000 compared to the same period prior year as they abruptly stopped new warehouse construction in Q1 of this year. Without the impacts from these 2 accounts, the business grew approximately 5%. In Q2, we saw a positive growth in our government sector where we have a very significant pipeline of projects we expect to begin in Q1 of fiscal year '24. Our new distribution business -- sorry, our distribution business also increased as our strategy of expanding geographic coverage and improving the strength of partnerships is paying off. Our ESCO business, as mentioned earlier, took a step back in Q2 as a result of some large projects taking longer than anticipated. All of these projects are still moving along, and we look forward to announcing some exciting news in this area in Q4 and Q1. Our turnkey business was primarily impacted by the decline of our #1 customer. We likewise have a significant pipeline of opportunities that will begin in Q4 and Q1. Lastly, we are making great strides in our maintenance business, and I am excited about the cross-selling to come in both lighting and our new EV business platform. Finally, Per Brodin and I look forward to meeting with some of you in person at the Craig-Hallum Alpha Select Investment Conference in New York on November 17 or in investor events next year. In the interim, if you have questions or would like to schedule a call with management, please contact our IR team, whose information is included on today's press release. Otherwise, I look forward to speaking with investors on our next quarterly call in February. Now I will pass the call to Per Brodin to discuss our financial results, balance sheet and our outlook for the balance of fiscal 2023. Per?

Thank you, Mike. Fiscal '23 second quarter revenue was $17.6 million versus $36.5 million in Q2 '22 and Fiscal '23 first half revenue was $35.5 million versus $71.6 million last year. Current year periods were impacted by project delays, as we have outlined earlier on the call. Revenue for both the second quarter and year-to-date periods increased when revenue from our largest customer and the large global online retailer are excluded, reflecting the strength of our core business. Our gross profit percentage improved sequentially to 25.3% in Q2 '23 as compared to 19.8% in Fiscal Q1 '23, but declined versus our 29.5% performance in Q2 '22. Year-over-year decrease was principally due to lower fixed cost absorption due to lower revenues. Conversely, our expectations for higher revenues in the second half of this fiscal year should have a positive impact on our realized gross profit percentage. The sequential improvement in gross profit in Q2 '23 versus Q1 '23, reflected a higher margin revenue mix of projects, ongoing supply chain and cost management efforts, and the benefit of prior price increases offsetting higher input costs. Fiscal Q2 '23 product gross margin would have increased compared to 2022 or not for the unabsorbed plant costs. Second quarter fiscal '23 operating expenses were $7.4 million versus $5.8 million a year ago, principally due to higher general and administrative expenses related to the January 2022 acquisition of Stay-Lite, the year-ago benefit from an employee retention payroll tax credit, which reduced operating expenses by $0.8 million and a noncash equity-based compensation charge. Operating expenses increased $200,000 sequentially from Q1 '23, primarily due to integration initiatives in our maintenance services business plus noncash equity-based compensation costs related to our CEO's retirement. Orion reported a net loss of $2.3 million or $0.08 per share in Q2 '23 as compared to net income of $3.7 million or $0.12 per share in Q2 '22 and a slight improvement over our Q1 23 net loss of $2.9 million or $0.09 per share. As of quarter end, net working capital improved to $32.5 million from $29.5 million at the close of Q1 '23 and compared to $32.9 million at the close of Q4 '22. Our working capital includes $16.8 million of inventory investments intended to position Orion to execute on our expected increases in volume. Orion remains in a strong financial position with approximately $23.7 million of liquidity that includes cash and cash equivalents of $12.5 million and over $11 million of availability in our credit facility. In addition, last week, we amended our credit facility to include the assets of our 2 recent acquisitions, which increased our asset borrowing base and credit availability. In September, we drew $5 million on our revolving debt facility to strengthen our working capital position and in anticipation of the Voltrek acquisition. In today's press release, we reiterated our fiscal 2023 revenue outlook of between $90 million and $110 million. This range reflects potential variability in the timing of several large customer projects and other factors outlined in today's release. The midpoint of this range represent strong double-digit revenue growth, excluding our expectations for our larger customer and the large online retailer, reflecting continued progress in diversifying our revenue sources. Based on our revenue outlook, we expect to be cash flow positive in the second half of this fiscal year. Accordingly, we expect our cash and liquidity position to improve through the balance of the fiscal year. This should keep us in a strong position to support our growth initiatives across the business. For M&A, while we continue to develop our pipeline of future opportunities, our near-term focus is on integrating our recent acquisitions to ensure their success as well as investing in organic growth initiatives. And with that, let's turn the call back over to the operator for Q&A.

[Operator Instructions] And our first question coming from the line of Sameer Joshi with H.C. Wainwright.

On the Voltrek front, you mentioned and it is well known that there is this $5 billion that is distributed through the state, whereas Voltrek is focused primarily in the northeast. Are there plans to expand that team so that they can avail and be position themselves to capitalize on all or most states plans that will come through in the first quarter of next year?

Sure. Sameer, it's Mike Jenkins. To answer your question, yes, we are expanding the team. We're adding resources to it right now. We see a lot of growth opportunity with the current -- under the current platform and the current location. So we want to continue to drive very strong growth that Kathleen has experienced in the northeast. In addition to that, we want to leverage the rest of our turnkey resources to help expand this platform on a national basis. And so there are discussions underway right now about exactly how to do that. As I mentioned under my remarks, there is very strong interest from existing customers about how Ryan could help in this space moving forward.

And then just a follow-up on that. I think in the press release announcing the transaction, there was a $4.8 million number during 2021 as a top line number for Voltrek. Is it tracking similarly for this year? And given that the earn-outs are like significant in the $1 million to $2 million to $3 million range over the next 2, 3 years, what level of revenues are you expecting from this, say in the next -– say in fiscal '24 and '25?

Sameer, it's Per. We did disclose on the initial call announcing the Voltrek transaction that their revenues were $4.8 million in 2021 and that we expect between $3 million and $5 million of revenue associated with that business in the second half here of fiscal '23. Given that we recently acquired the entity, we're still in the process of determining what we think the opportunity is, specifically for fiscal '24 and hope to be in a position to discuss that in more detail on the February call. But I think as we iterate or as we mentioned on the call a month ago, we see significant opportunity for this business, and that's the reason that we went down this path.

And just one last one from me. Gross margins have improved significantly sequentially. Are we -- and given that the second half revenue is expected to be much higher than the first half revenue, should we expect to return to that 28% to 30% blended gross margin in the next 2 quarters or how do you see that developing?

I think the best way to think about it is we obviously achieved 25.3% in the current quarter, and we're doing everything we can to maintain or improve on that. We expect our revenues to be higher in the third quarter of fiscal '23, which should improve our absorption. We've been managing the costs as carefully as we can. So we would expect to be able to improve on the 25.3% depend -- I would expect it to slide to a better amount as those revenues continue to improve.

And our next question coming from the line of Eric Stine with Craig-Hallum.

It's Aaron Spychalla on for Eric. Maybe first, good to see several customers reengaging and confidence in starting projects in the second half and into next fiscal year. Can you just kind of elaborate a little bit more on the confidence there, any gating items that might be required? And then just on the customer that kind of halted, any more color that you can share there, magnitude. It sounds like it obviously wasn't related to you just more customer specific, but any color would be helpful.

Sure. Great questions there, and thank you. I'm going to go in reverse order. First, on our comments about our global online retailer who pulled back in their project business. We first started talking about that back I think in January or February, where initially they pulled back because they were at these were new construction sites, and they were having issues on their supply chain of getting equipment and other mechanical and steel for the facilities. And then shortly thereafter, they announced publicly in a number of places that they felt they had overbuilt to a certain extent for a period of time and decided to take a time out from doing these new construction facilities where we were providing the overhead lighting in the PIC modules. So it was something, frankly, out of our hands. We had expected a fair amount of that business for us. It was $5 million to $7 million of business last year and it kind of stopped very quickly. So that's the one project we are mentioning in our comments this morning about a project that is not going forward. On the positive side, we realized we've talked about several really positive projects for a few quarters. And what we're excited about is that we are seeing them coming to conclusion in terms of getting ready to kick off. So one example, we've talked about working hard on a project for a very large logistics company with many facilities across the United States. And we've been doing some modest amount of business with that customer for the last couple of years as they've gone through planning for a much larger project, and we now have a material supply agreement in place with that customer, and we expect to play a very significant role as they go forward with their retrofitting of LED lighting in their facilities across the United States. And we expect that business to kick off for us during our fourth quarter of fiscal '23 and then accelerate as we go forward. And it's a very nice opportunity, and we're very pleased to have the contract in place, which spells out the specific pricing. And now it's all about them getting sites ready, getting those sites audited and kicking them off and then having us provide product for those locations that we're very excited about that one. The second one I would mention is that we've talked about a really nice large public sector project where we are going to be the Tier 2 contractor to the prime contractor with the federal government and the contractual relationship between that prime contractor and the government took much longer than expected. We are now in the very final stages of getting that all ironed out, and we expect to be able to talk about that in the near future and that project will also be kicking off at the beginning of the calendar year, our fourth quarter of fiscal '23. And then beyond that, we have several very nice sized projects that have been in the works for a number of quarters that we also see kicking off during the third and fourth quarter of our fiscal year. So those big handful of large opportunities is what really gives us optimism as we enter into the second half and momentum going into fiscal '24. And then I would just add on top of that, our other business, both in distribution and ESCO has some very nice activity that is giving us a positive feeling going into the second half of the year.

And yes, I missed kind of that it was the global online retailer. On that ESCO, you did talk about a few of those large opportunities kind of coming later this fiscal year. Can you just kind of talk again about just what's kind of unleashing those and kind of optimism there as we look to next year from that business?

Sure. Yes, we've really, as we talked about on prior calls, we've seen a lot of growth opportunities through our ESCO channel and partners. We put a fair amount of resources and work into building those partnerships and really exploring growth opportunities. We've got some excellent partners who are bringing forth some very significant opportunities in a number of different verticals for us right now. I think that the pipeline for ESCO is probably as significant as it's been in maybe ever, but quite some time. And a number of these really we're looking at a strategic partners that they can then help us get into new verticals that quite frankly we haven't been in before. So I think it's a real win-win kind of partnership.

[Operator Instructions] And our next question coming from the line of Alex Rygiel with B. Riley.

Could you give us an update on the PUREMOTION products in any details as it related to the first project that was started last quarter?

Sure. We continue to work diligently on that product with the PUREMOTION, in particular, the PUREMOTION product that has the UBC application in it, which can deactivate and kill viruses and mold and mildew. Alex, it's been a slower process than we expected. We continue to have some very nice opportunities of size that we are working with people on and those have continued. We've talked about those in the past and they're continuing. And we also see potential for the -- let's call it, the base product, which is the air movement product, which is available to put into a ceiling trougher type product that helps move air and circulate air within a particular room, which can have some very significant energy savings with respect to the HVAC systems. So we continue to believe we have a very strong product. We have had a significant investment in marketing activities during the year, and we're still optimistic that we're going to land a couple of nice sized projects in the future on that product. But it has gone a little slower than expected.

And then on Voltrek, did you acquire any backlog? And how does that backlog compare to maybe a year ago to help us to sort of understand what the revenue growth rate of that business can be over the next year or 2?

I think I'd start and then we're just going back over the numbers that we talked about earlier of $4.8 million during calendar '21 for their business. And now we now expect to have revenue of $3 million to $5 million in the second half of our fiscal year. So obviously, roughly doubling in size from a year ago of where they have been. So very nice growth that they've had. Yes, they had backlog as we acquired the business and very nice activity. And so we are able to hit the ground running and why we feel there will be nice significant revenues during the second half of the fiscal year. There is a lot of planning that goes into place for EV charging solution projects. And so it's similar to our other business where there are site visits and engineering work that's done and approval processes and then the supply chain for EV also has some challenges to it, so things do kind of build up from a backlog standpoint. So we feel good about the backlog they have. And as Mike mentioned earlier, we're making significant investments to expand that business across the United States.

Our next question coming from the line of Bill Dezellem with Tieton Capital.

Congratulations on having customers reengaging with you, but I'd actually like to dive into that in a bit more detail. Why do you sense that they are re-engaging, given the economic uncertainty that actually seems counter to what I would have otherwise anticipated? I would love to hear insights on that split?

Bill, I'm going to have to ask you just repeat it one more time. You're coming through very low on volume. So if you could please ask a question one more time?

So congratulations on customers reengaging with you. But the timing to me is a surprise. It seems with the increased economic uncertainty that would lead to less re-engagement and yet you've talked about having more re-engagement. So the question is why, why do you think they're re-engaging now?

Yes. That's an excellent question. And my view on it is that while we use the words re-engage, I also think is mostly linked with we have seen the decision-making process for larger projects move a little bit more slowly than in the past. And we've commented on this previously. So part of the reason why we think we're seeing the -- and speaking positively about the second half of the year and going into next year is that these projects that have moved slowly through the customer approval process, we can see are getting very close to the end. And the reason we think they're going to continue is that most of them have very significant savings related to them from an energy standpoint. We often comment that most projects have 50% or greater energy cost reductions. And so we have seen in the past that even if the economy might slow down, it provides an opportunity for companies to reduce expenses going forward. So certainly we will and remain cautious about the economy as everybody is. At this point, we haven't seen it slow down the project activity that has been going through the process with our larger customers.

And then relative to pricing, could you talk a bit about how much you believe that you still need to raise prices further? And to what degree you are finding willingness or tolerance by your customers for you to raise prices?

So Bill, this is Mike Jenkins. We -- as you're aware, probably we've talked about on prior calls, we have done a fair amount of price adjustments as we've seen inflation move up over the last 18 to 24 months. I would say that in general, in our industry, we're not seeing nearly the same rate of inflation in terms of input costs. Transport costs are starting to decline from ocean freight, lead times are also getting better, those types of things. So the inflation kind of curve that we saw before has definitely flattened and we're obviously very vigilant on looking at it and making any price adjustments that we need, but it is moderating to a large degree. And we feel like we've kept up with it thus far.

And then finally, your service margin gross margin increased to something in the neighborhood of 850 basis points versus the first quarter. Is that increased service gross margin a function of having Stay-Lite in the mix and some of their expertise or is there something else going on? So maybe a bit of why such success with service gross margin increasing sequentially?

Bill, it's Per. I guess I'd say that the margin within service can fluctuate a fair amount. I'd say it's not -- I wouldn't attribute it to the expertise that Stay-Lite brought to the table with their base business. That service margin, just as a reminder to everyone, includes installation services. So it is not just maintenance services, and that's where mix, I would say, could be one of the bigger impacts on that rate from a quarter-to-quarter basis.

Our next question coming from the line of Jeffrey Campbell with Alliance Global.

I just wanted to ask a question with regard to kind of the structure of the Voltrek business. Is this primarily an EPC business? Are you actually going out and procuring real estate or leasing real estate to develop these facilities? And is there going to -- do you envision any change in the way the business works now versus what you see for it as you expand into different parts of the country?

Sure. This is Mike Jenkins. The business itself is a design and installation business. We go out and guide our customers through the process and then manage in a turnkey fashion in the installation. We also do sell some of the products to other channels and to other partners as well, but we do not enter into the management of the real estate or leasing products or any of those kind of structures, which are available today. As far as the future, those things are really not in our current thinking, but always we'll be looking at how the industry evolves over time. I also would add and highlight what we've talked about in the past that we are -- we have the ability with Voltrek to use multiple suppliers for hardware. So we want to be in the business of providing the product for these EV charging solution projects, and we already have access to both ChargePoint and ABB from a supply -- very strong supplier relationship, but we also have others that can supply product. So our goal is to have the ability to bring various products, solutions to the customers, have the turnkey solution like we've done at Orion and Voltrek done in the past of the installation. Then obtain the ongoing maintenance service contracts and also have ability for additional recurring revenues when there might be other kind of subscription revenues with respect to certain products being sold. So that's kind of the business model that we see. We currently, as Mike said, don't see ourselves being an EPC of owning the actual stations.

And our next question coming from the line of Andrew Shapiro with Lawndale Capital.

A few questions, if you could. Your acquisition of the service business, I guess it was 3 -- maybe 3 quarters maybe a year ago now. On a prior call, I had asked about your thoughts on expansion to different geographies. And you thought that that might be via acquisitions, maybe more than organic growth. Then the Voltrek acquisition occurred. And I didn't know if the types of business that Voltrek is and the service business -- and service and maintenance business that you kind of acquired to expand, what synergies, if any, they exist and if they are achieving some of that geographic expansion since Voltrek is so strong in the northeast.

Sure. High level, yes, we see synergies between both of these acquisitions, both with each of those companies as well as with our existing Orion business. So to kind of go back and talk through a little bit, we felt a strong opportunity to enter the maintenance business and write it. At the beginning of this calendar year is when we closed the acquisition of Stay-Lite. And Stay-Lite has a nationwide footprint of being able to deliver maintenance services for lighting and miscellaneous electrical services as well as having 15 states where they can actually self-perform those services generally in the upper Midwest out to the East Coast and the southeast a little bit. We plan to expand our ability to provide those maintenance services through additional self-performing but also great partnerships with other service providers and continue to have that nationwide network. Mike mentioned earlier today, we have our first larger new opportunity for that maintenance business with an entity that has a number of locations in the southwest, primarily in the west. So our feeling today is that while initially, we had thought maybe we would do additional acquisitions on the maintenance side of the business. As we did our additional research and felt that EV charging solutions was a great place for us to move to, we turned our M&A attention towards that area. And it's also a factor that we think we probably can organically grow the existing maintenance business currently as opposed to look at multiple acquisitions at this point in time. We think the Voltrek acquisition was the right move. And the synergies between them is that the maintenance services that are needed for lighting maintenance, we think are synergistic with the maintenance services needed for the EV charging solution projects. So over time, we could see having our technicians who are providing these services in the field service both the lighting customers as well as the EV charging stations. And as you build additional density in different areas of the country, it becomes a very positive business model to have our own people doing that work. And then finally, I would simply say -- I'm sorry, go ahead.

No, no, go ahead. I have a follow-up anyway. Go on.

Yes. So I think now we've made these 2 acquisitions during the calendar year, it's time for us to make sure we integrate those very confidently and smartly. And then we'll continue to sit back and say, how do we move forward to grow those -- both businesses, both organically or through additional acquisitions.

That's good. Because I was a little concerned about getting another service maintenance acquisition and just trying to integrate so many things when you guys are trying to -- need to execute on the business at hand. Now with respect to Voltrek, which is primarily in the northeast, what is the, I guess, the timing and the plans for rolling out its business model and its business services beyond its geographic strength? Is that going to be organic? How does that -- how do you envision that occurring? And -- or is that going to be something after -- that will wait until after integration and then they'll need to be an acquisition?

This is Mike Jenkins. I think we've already started with some customer engagements outside of that core area. We feel like we can leverage some of the resources and partnerships that we already have today on the turnkey side of our business to do some of the execution for that model outside of its core area, but it's going to be largely an organic build for us.

And then last but not least, can you quantify and describe the timing for which you will or have already recognized the acquisition costs, I would assume either in the SG&A or potentially broken out as a separate line item for the recent Voltrek acquisition, which doesn't start generating, I guess, revenues and cash flow generation for the company until this current quarter ended, I guess, December?

Sure, I'll take that. We did see in the P&L in today's press release some acquisition-related costs that were recognized in the most recent quarter, in the second quarter. That was to the tune of about $300,000. There was some acquisition-related costs associated with that for both Voltrek and still a little bit for Stay-Lite. As we move forward, there will be, I'll say, some transaction-related costs that still come through here in the third quarter. And then there will be some integration-related costs that will come through. The more significant component that I want to make sure everyone understands and you mentioned on the call announcing the Voltrek transaction is that the earn-out payments that are associated with the transaction for Voltrek will be recognized through the P&L. So there's an earnout opportunity for fiscal year '23, fiscal '24 and fiscal '25, those costs from a GAAP standpoint will come through the P&L as we assess that they're being earned. And then they would be paid in a subsequent period after we've finalized the measurement of the progress against those earn-outs.

Yes. Is the earnout metric then revenue based or will it be hopefully more cash flow emphasized?

It's EBITDA based.

Thank you. And that concludes the Q&A session. I will now turn the call back over to Mike Altschaefl for any closing remarks.

Thank you, operator. As some of you may know, this is my final earnings call as Mike Jenkins will become our next CEO after our quarterly Board meeting on Thursday. I will continue to serve Orion as a Director. I'm confident that Mike has an excellent combination of experience, leadership capabilities and proven business success to lead Orion to a bright future. I would also like to thank the entire Orion team for the privilege of working with you, all of you as CEO over the past 5.5 years. I'm very proud of the talent and commitment of the team that has allowed us to put the business on an exciting path for the future. I'm truly grateful to have had the opportunity to lead Orion. I would also like to thank our investors and other stakeholders, including our customers, partners and suppliers who have believed in and supported Orion over the years. So thanks everybody, for joining today's call. And the team looks forward to talking with you after our next quarter. Thanks a lot.

Today's conference call has now concluded. Thank you for your participation. You may now disconnect.